Cost of Missing Discount

Cost of missing discount is the equivalent annual interest rate of a discount on early payment to a supplier. Often, suppliers will offer a discount to their customers to encourage prompt payment, rather than waiting until the last day the money is owed. By not taking this offered discount, a company is paying more than required in order to keep the funds until the last day. This discount is equal to an annual interest rate and can be associated with the funds withheld until the final payment day.

Cost of Missing Discount Definition

Cost of Missing Discount is the equivalent annual rate of return lost by not taking the offered discount. This is considered an opportunity cost of missing the discount.

Variables

D=Discount offered as a percentage
F=Final payment date in number of days
L=Last discount date in number of days